Speculative trade sees a dip as Sebi restrictions take effect2 min read . Updated: 07 Apr 2020, 06:43 PM IST
- The average daily exchange turnover in derivatives, or F&O segment in the market, has halved since changed rules on enhanced margins and curbs on short-selling took effect
- Traders also opted for physical delivery, signalling most trades were genuine and not based on speculation
MUMBAI : Recent steps by markets regulator Securities and Exchange Board of India (Sebi) to curb volatility have succeeded in reducing speculative trades, showed data analyzed by Mint.
The average daily exchange turnover in derivatives has halved since Sebi enhanced margins and put curbs on short-selling on 20 March. Average daily exchange turnover in derivatives contracts, which remained above 1.2 million on non-expiry days, has since come down to about 400,000-600,000. This indicates that despite extreme volatility in broader indices, speculative trades have seen a marked dip due to the regulator’s steps.
Expiry day is the future date by when derivatives contracts have to be fulfilled either by taking delivery or rolling over the position.
On expiry days, before the changes took effect, the exchange turnover was as high as 3.7 million, which has since fallen to a maximum of 1.45 million.
In fact, the number of derivatives contracts fell 19% in March. This was not just due to the Sebi measures but also because of the extreme volatility which had hurt option sellers. Traders also opted for physical delivery of trades, suggesting most trades were genuine and not based on speculation.
The markets regulator on 20 March announced a series to steps to curb the extreme volatility in Indian markets. The regulator prescribed enhanced margins for highly volatile stocks and reduced market-wide position limits for volatile scrips. It also curbed short-selling by mandating that any such position above ₹500 crore had to backed by actual stock.
“The reason for reduced F&O contracts is the Sebi curbs. Margins have become very high for volatile stocks. For instance, the margin requirement for Axis Bank, which is witnessing volatility in the range of 10-15%, went up sharply by 25%. While the F&O contracts have reduced, the cash market turnover has largely remained the same," said Prakash Gadgani, CEO, 5Paisa.Com, a zero brokerage offering from broking firm IIFL Securities.
While speculation has been contained, extreme movements of broader indices continue. Indian equities rallied on Tuesday, with Sensex ending 2,476 points higher at 30,067, its biggest one-day gain in percentage terms in over 10 years. The broader Nifty surged nearly 9% to 8,792 points.
“Volatility is largely a market function and depends on global market cues," said Nilesh Gokral, chief operating Officer, Angel Broking.
“But we have definitely seen a marked reduction in the F&O contracts and turnovers that speculation is on the downturn. Cash market turnover has remained unchanged," he added.
Investors taking cash delivery against trades also increased by about 2% in the five days of trading sessions after 20 March. On 23 March, the first trading session after Sebi curbs, cash delivery had peaked to 54%, the highest in March. The number of derivatives contracts traded in March stood at 399.8 million, versus 494.1 million in February and 544.1 million in January.